Fears of unit oversupply in Melbourne

Melbourne property stalwart Max Beck has warned the city is headed for a massive oversupply of apartments that may cause a market implosion that would decimate property values.

Beck, who founded
Becton Property Group
and whose own children are now in the development game, said banks who provide construction finance should also be prepared to stump up settlement finance for purchasers on any project they are connected to.

“There’s not a lot of point in banks getting good margins and funding the construction on a whole lot of projects and then we find we haven’t got the capital capacity to settle these apartments because that will end in tears," he said.

“It’s rare to find a developer talking down the market, I’m probably getting old and senile," he joked.

“But I’m very conscious at this stage in my life, because my kids are doing a few developments that I want the market to remain stable and in good shape."

Beck said he has worked through four major property cycles in his life and past experience had shown it does nobody any good to see the market implode.

Beck’s comments follow research from property house Oliver Hume, which found more than 33,000 apartments are on the drawing board across metropolitan Melbourne.

Oliver Hume said more than 10,700 apartments were planned for suburban Melbourne.

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Beck said he prefers developments of below 150 apartments as part of infill projects in suburbs like Brunswick and Richmond where there’s a scarcity of apartments.

“I really like the medium-sized projects, I think everybody lives with them and in selective locations that are fairly rare," he said.

“I don’t like mega-projects; I don’t think they’re good for anyone quite frankly because they have all sorts of social connotations too."

Beck said real estate is like any commodity in that the value is in its rarity.

Oliver Hume general manager apartments Jamie Kay said the CBD fringe apartment market (Port Phillip, Stonnington and Yarra) was booming with almost as many apartments projects being marketed as the City of Melbourne.

At the end of the September, 8846 units were selling in suburbs surrounding the City of Melbourne, according to Oliver Hume Real Estate Group.

Mr Kay said apartment activity was spreading through Melbourne’s fringe, suburb by suburb, almost in a wave.

“St Kilda and Port Melbourne were busiest first. Richmond is busy now and we can already see Abbotsford beginning to attract a larger number of apartment projects."

Inner- and middle-ring apartment projects are being developed in higher numbers in response to the entry prices for traditional landed housing options.

State government forecasts put inner Melbourne dwelling demand in the order of 4500 units per annum (to 2014).

Apartment towers in the City of Melbourne were taller with an average 244 units, while projects in fringe suburbs average about 100 units.

The inner Melbourne market has grown in recent years. Since June 2008, around 50 per cent of Melbourne apartments on sale were in the inner four municipalities but that had risen to 68 per cent at the end of the last quarter, according to Oliver Hume Real Estate Group.